01 November 2009

UC's own construction bubble

One has to wonder why UC administrators have such a fixation with big, expensive construction projects, be they stadiums or administrative buildings. Yes, we know that they add to the clout and prestige of the campuses and keep alumni happy by providing fancy settings for home football games, but in these difficult times a little restraint would have seemed in order.

Berkeley is in the process of building the new state-of-the-art California Memorial Stadium, including the Student-Athlete High Performance Center, at a projected cost of $312M and $136M respectively. This is close to half a billion dollars in construction costs. All such projects at UC are supposed to be self-supporting, but Berkeley's Intercollegiate Athletics has been losing around $10M year for the past few years, money which is supposedly being re-paid from core campus funds, so it's not clear how Berkeley's IA plan to repay that additional debt (unless they are relying on a hare-brained scheme to "sell" stadium seats at $220,000 each).

And this is just an example. How's UC planning to pay for all this? As pointed in Bob Meister's Open Letter and in the relative follow ups, since 2003 UC has been going on a veritable borrowing spree on the private financial markets, made possible by their pledging students' fees as collateral, a fact that raises a number of questions and helps explain UC's mad rush to raise student fees. It's precisely those fee increases that allow UC to maintain its high credit rating, which in turn allows it to obtain on the private market the funds it needs to feed its construction addiction.

But now Bob Meister has uncovered a discrepancy between the Regents' "ed fee" policy, which does not allow student fees to be used except for services for the students' benefit, and Peter Taylor's (UC Executive Vice-President and CFO) presentation to UCPB listing student fees among (and in fact the prominent of ) UC's "sources of debt repayment." So let us reiterate the question Bob Meister posed to the Regents:

Are student fees, besides being pledged as collateral for construction bonds, actually being used to pay for debt service on those bonds?